Friday 9 March 2012

Costs Of H&F Council’s Incompetent Tax And “Consultants” Woes Casts Its Shadow Over Borough’s Annual Budget Meeting

Millions of pounds have been wasted out of
H&F's £200,818,000.00 annual budget
Sometimes, it’s all in the body language. At last week’s Annual Borough Budget Meeting the Conservative benches were worthy of study. The triumphant braying and back slapping slipped into petulant heckles and shouting and ended with a sullen anxiousness, as one-by-one, they noticeably sunk lower and lower into their seats as if hiding themselves away. The cause of this downward trajectory in their collective spirits was waste? And not just any waste. This waste could see the Council fined and back taxed up to £15m for operating outside UK tax laws.

Regular readers will recall how my Labour colleagues and I have criticised H&F Council's (and H&F Homes - its onetime housing management subsidiary) dubious practice of re-employing retired local government officials as “consultants” via limited liability personal service companies. Doing this has the benefit to the “retirees” that it side-steps Local Government Pension Scheme (LGPS) rules which would have otherwise forbidden them from working for another council without suspending their generous pension payments. The infamous case of Nick Johnson is documented here.

This also allows H&F Council to duck out of paying National Insurance and other contributions - so H&F Conservative have argued that doing this is “good value for money.” Well, it’s not. And, if we put aside the value for money of making tax payers pay out twice for both “retirees'” vast final salary annual pensions as well as their vast daily consultancy rates (often about £1000 per day) we also have the problem that this is very often contrary to Her Majesty’s Revenue and Customs (HMRC) rule IR35 and therefore makes H&F Council liable for back taxes and possible hefty fines going back six years.

I first wrote to H&F Council about this possible tax avoidance on 16th December 2010. Initially, nothing was done but I persisted. The Conservative Administration started by admitting that it didn’t know how many “consultants” they actually employed and so they commissioned Deloittes (a genuine consultancy company) to look into the matter.  By 30th June last year Deloittes were able to report that there were sixty nine consultants working at H&F Council and that seventeen of them worked via personal service limited liability companies. They also found that H&F Council had in fact broken all its own rules for hiring consultants and there was:
  • “No evidence of any formal documented selection and recruitment process”
  • “No evidence of any formal performance monitoring”
  • “No complete list of all the consulting companies used by the Council”
  • “Of all the consultants examined there was an agreement with only one”
The Council had potentially wasted up to £12m in this way. Bob Neill MP (Con), the Under Secretary of State at the Department of Communities and Local Government, told the BBC that this “may simply be slackness but slackness isn’t forgivable under these circumstances.” I agree.

But all of that is the least of H&F Conservatives’ woes. What about their Council operating outside of UK tax laws and the possible £15m in back taxes, fines and other sanctions that could hit the Borough's finances? By October last year H&F Council eventually agreed to consider that matter and officially hired PricewaterhouseCoopers (PWC - another genuine consultancy company) to report back. But what was the brief?

On 10th June last year I met with top level officials who told me that they were hoping to hire PwC but when I asked to see the brief I was told I “would have to get a court order” to see “all written documents, emails, etc sent to PwC seeking advice on this matter.” I followed the meeting up with an email which pinpointed how “I was deeply concerned during our meeting that PwC may not have been asked about LBHF's position to date. Instead, [I was] told that a question on how can LBHF improve this situation in the future was raised.” I explained that should Labour form the new Administration after the 2014 local elections “I would not look kindly on officers if the new administration was dealing with unnecessary cost implications because of this failure to act properly.”

Going by the evidence on this matter, it appears that H&F Council has only asked PwC about getting things right in the future and is deliberately not seeking to ensure that the Borough’s tax affairs are compliant with the law or up-to-date. It has consistently refused to inform HMRC of its actual situation. At the Audit Committee meeting on 30th June 2011, Cllr. PJ Murphy (Lab) asked whether the Council should report its problems concerning one case to HMRC. A senior officer told him “given the high profile of the situation in the media, HMRC would be aware of the situation, and had not approached the Council. If the Council approached them directly, a further inquiry would take place, with further impact on officer time and resources.” The two Labour members on the committee then put that question to a vote. They voted to inform HMRC but were blocked by the Conservatives who used their majority to vote it down.

On 9th November 2011 Cllr. PJ Murphy wrote to a very senior official to ask what are the “actions required to ensure we are fully compliant?” She replied that "This has given LBHF an assurance from PwC that the Council will in future meet HMRC requirements." There it was again: “in future”. What about the last six years? HMRC are entitled to investigate any tax discrepancies and if they believe an organisation has acted improperly can issue millions of pounds of fines. The way to avoid this is to contact HMRC and ensure all back taxes are paid and that there is not even the slightest whiff of tax or avoidance or tax evasion.

So at last week’s Annual Budget Meeting the Labour Opposition moved a proposal to:
  • "To inform HMRC of all cases where it has employed individuals via personal service companies and ensure it tax obligations are met and up to date"
  • "To report to Cabinet and the Audit and Pensions Committee full details of any back-taxes and fines issued by HMRC on IR35"
Astonishingly, the Conservatives each voted against this.

On top of all this it is interesting to note that last year H&F Council employed 20% of its directly employed workforce as agency workers. A senior director told a Labour councillor that he believed this was necessary in one particular instance as he could not pay his senior staff member enough if they had been employed through the normal local government recruitment rules and were on its recognised pay scales. That individual takes well over £100,000.00 a year from the public purse.

There were 540 agency workers at H&F Council in the last year. Some have worked there for five years and more. At last week’s Annual Budget meeting the Labour Opposition argued that this expensive way of hiring and employing people should be curtailed for all but emergency cases. We proposed that the Council should start to cut this practice and agree:
  • "To review its use of agency workers looking for more cost effective means of employing individuals and to publish all details of agency workers employed by LBHF and/or its subsidiaries and detail the salaries of all of those over £100,000.00 per year."
The Conservatives voted that proposal down too.

In recent years we have become accustomed to H&F Conservatives’ particular habit of wasting public money. On 6th April 2010 their waste of £5m on propaganda was highlighted by John Whittingdale MP (Con) the Chair of the Parliamentary Culture Media and Sports Select Committee. He accused them of "misleading" the public by producing "political propaganda on the rates”. They were attacked by the TaxPayers Alliance for giving senior officials 16% salary rises and this year it emerged that H&F Conservatives were gifting up to £70m of land so they could get £35m worth of new Town Hall offices in the much detested Hammersmith development. It’s hard to believe the Administration really understands the importance of setting the right tone and carefully managing every penny when it was only last November that they spend over £7,000.00 of tax payers' money on a Monday afternoon booze-up for senior officials, their friends and family.

My Labour colleagues and I support cuts to council taxes and have been campaigning for this to happen. This year the Department of Communities and Local Government awarded H&F Council an “additional grant”of £1.6m to cut or freeze council tax - which it describes as equivalent to 2.5% off council tax. Last year H&F Council generated an extra £655,000.00 in its parking account. These figures combined are equivalent to this year's 3.8% cut in council tax.

But consider that just one of H&F Council’s so called “retiree” “consultants” (working via a limited liability company) has since just 2008 earned the equivalent of giving every household in the Borough an additional 2.5% council tax cut and it’s obvious more could have been done to cut all council taxes by much more and help residents in these difficult financial circumstances.

It is good to cut council taxes but not so good if rather than tackling waste the Conservative Administration simply introduces stealth taxes to find less obvious ways of getting residents hard earned cash. H&F Conservatives have introduced or increased nearly 600 stealth taxes in total during the last six years. They made the Daily Telegraph’s list of Parking Shame for 55% hikes in parking charges, new opportunities to issue parking fines and higher parking fines; child care charges rose by 221% in this Administration’s first year and last April the Daily Mail attacked the Conservative Administration for taxing people who use personal trainers in parks. The Conservatives have added a staggering £600 a year to the bills of those in receipt of meals on wheels and one of their officials even admitted the Administration had put the elderly and disabled residents “at risk” by introducing home care charges. At one point the Conservatives even objected to the public being given the full list of the new stealth taxes - which indicates how nervous they are about their new approach to tax.

Last year for every £3 cut that the national government made to the Borough’s budget the local Conservative Administration added an extra £1 cut. The hard ideological approach behind that decision was underlined by Cllr. Harry Phibbs (Con), H&F Council’s Cabinet Member for Community Engagement, when he announced“I'm with the 35% of people who feel the cuts don't go far enough”

This year the Conservatives are removing £22,687,000.00 out of the Council budget. I agree that some aspects of that money will be genuine savings however lots of this money will be generated with more stealth taxes and harsh cuts to front line services.

Here’s just a handful of the stealth taxes and cuts detailed in the report
  • 4.9% increased charge to meals on wheels users on top of the £600 per year increase already introduced by H&F Conservatives since 2006
  • 23% increased charge for small businesses to remove trade waste
  • 25% increase on top of the new £20 charge for households to remove bulky and garden waste
  • 25% increase in charges for children's (under 18s) football charges
  • Target generating an additional £250,000.00 from the public with new opportunities for parking fees and fines
  • £290,000.00 cut to mental heath support services at the Ellerslie Centre – which was signed off while the Council was supposedly consulting on its future
  • £310,000.00 cut by offering less support for people with learning difficulties
  • £120,000.00 by reducing security operation on council estates
  • £95,000.00 cut to the anti-crime Eyes and Ears Project
  • £100,000.00 cut to the anti-crime community safety team
  • £89,000.00 cut to parks and waste service
  • £220,000.00 cut by further reducing the maintenance of roads and pavements
  • £94,000.00 cut to the drug intervention programme
  • £1.583m cut to supporting vulnerable people programme
  • £300,000.00 cut to child safeguarding service
  • £175,000.00 cut to the child protection service
These are tough times and the government’s austerity approach is coming in for ever harsher criticism. But are all these cuts really necessary given the waste elsewhere?

My Labour colleagues and are campaigning for an end to this waste, we want tighter financial controls and believe we should use zero based budgeting to root out redundant council practices. These processes will help to drive efficiency and so improve services. And we will be able to deliver genuine savings that can be used to cut all council taxes.

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